Friday, September 28, 2012

Slow Burn

I chanced upon  an old friend, Tommy Crown, recently. We were both born in the same decade - and though I was older, he was more senior in all respects. While I was a product of the baby boom, he was a product of one of the golden ages in American film-making. It was good to see him again after all the years that have passed. We've both aged - no doubt - but his theme, The Windmills of Your Mind, remains as enchanting as ever.

Relatively speaking, my life has been ordinary, whereas Tommy's has been both enigmatic and exciting. At least comparatively-speaking for 1968. Then, it was the statesmen, politicians, writers and actors were envied, emulated and placed upon pedestals. Tommy, on the other hand, was a secretive financier. Arbitrage. Foreign Exchange. Private Geneva-based Swiss Banks with numbered accounts. A rarefied world not only unknown to, but obscure and unheard of, by most. He was rich and lived very well indeed. Tailored suits, finest restaurants, art auctions, a large house in the middle of the city with an interior compound complete with full-time butler, expensive cars, thrilling but patrician passtimes (polo, gliding etc.) the secluded beach house. How rich? According to the police, briefing the lovely insurance investigator (played by the lovely Faye Dunaway in a performance only outdone by Chinatown), he was divorced (wife got the kids) and worth... wait for it... FOUR MILLION BUCKS!!!   Messrs. Soros, Simons, Griffin and Cohen would be laughing in their beards should they chance upon Tommy and his feeble net worth now! And yet, despite that money, and  his hobbies, that didn't stop him from getting bored.

But that was more than forty years ago. And during the intervening time, Tommy's fine tastes have, without exclusion, been popularized and lifestyle replicated by all who can, and even surpassed in material terms (Tommy never 'flew private' and  had no insecure nouveau riche desire for 20,000, 30,000 or 40,000 square feet of gold-leafed, mirrored vulgarity or a ridiculuous oversized stinkpot. In fact, HIS beach pad was a an elevated platform set amidst the isolated dunes. During this intervening time, we have seen hot wars and cold wars, double-digit inflation, high double-digit interest rates - both at the long and short ends, recession, the deepest of bear markets and the most exhuberant of bull runs. Market Crashes lasting  months, a week, a day, or just hours. We have endured scarcity and swam in plenty. Suffered quadrupling of our energy staples in short times, and seen it diminish in price by 75%. We've witnessed leaders assasinated like ducks from a blind, airplanes flown into buildings, not to mention several nuclear accidents and meltdowns. We seen arbitrage, foreign exchange, and finance go from being mysterious to a place in our society where every newly-minted Ivy MBA doing an analyst stint at an IB or management Consultancy wants to be Hedge Fund Manager. Statesmen, it would seem, are no longer 'de rigeur', nor the envy of the educated and aspirational class. Oh, and did I mention that we've seen 'inflation'?

Yes, amongst all the volatility and tectonic change, inflation has been (along with environmental degradation, technological innovation) one of the few constants. Tommy Crown probably would have done alright. Some fine Art.  Prime Real Estate - both city and beachfront. A portfolio of Blue Chip Stocks. Some Precious Metals. Oh yes, Tommy's net worth if he stayed the course, wasn't leveraged (in the wrong place(s), at the wrong time(s)), would easily be worth a few hundred million (excluding what he stole in the bank heists). Yes, he probably has a large outstanding capital gains bill, but I trust Tommy structured his affairs to the best of his interests. 

When one looks back, the defining characteristic has been inflation. How unimaginably small his "rich" was. How cheap things were and how generalized inflation -  sometimes pernicious, sometimes benign, occasionally dormant, but always visible in the long run. But rarely if ever in a straight line, and never with a certainty that would encourage anyone to extrememely lever-up to express this process in a trade, or an all allocation outside the most longest of runs. All the while, society, trade, life has not collapsed and returned to barter or descended into Mad Max or Orlovian chaos. The debasement of money while seemingly certain, has not been and likely will not be, mirrored over shorter horizons. It is a slow-burn - not a napalm firestorm. You will read this tomorrow, next week, next month, next year even, and the changes excepting a few oddities -are likely to remain under the perceptive radar, though this is not the rhetoric of the fear-mongering gold bugs (whose asset it must be pointed out is expensive to everything in every currency).  This slow burn effect should make one wary of the imminent hyper-inflative doomsday trade, however compelling the demagogic arguments may appear to buy gold on margin or why silver prices will go to $80/oz this year or some other exponentially higher number next year. 

Make no mistake. When I am Tommy's imputed age, I will likely be worth hundreds of millions of dollars too. But forty years is long long time, and there will be untold and unpredictable wiggles and squiggles enroute that make the concentrated doomsday trade dubious and highly-suboptimal at best, and a royal waste of bluster for its heralding trumpeters.

Thursday, September 27, 2012

Not Ordinary Foolishness

It's one thing to stretch the limits of tax deductions making an informed risk assessment of the probabilities of being raked over the coals for it. It is completely and altogether different thing to stretch the limits of available deductions when you know, for 100% proof-positive sure that you WILL be raked over the coals, if not by Agent Rudnick, then by the investigative press of the entire free world, and indeed probably the less-than-free world looking for potential a leg up. Why do I make such a distinction? For the obvious reason that willful pursuit of the latter (via the declaration of Romney-ette's Rafalca as a business expense) displays either (1) An appalling lack of judgement and forethought; (2) Complete idiocy (3) Wholesale arrogance (4) Foreskin-thin managerial abilities in regards to instructing one's accountants about the importance of probity of one's financial affairs (5) Less than Carnegie-like business acumen if Rafalca was infact intended to be a bona-fide entrepreneurial startup.

Supporters of the former Mass. Guv. will of course spin it differently. Given our fiscal mess, they might say Americans WANT (no, in fact NEED) someone who is adept at aggressive accounting tactics. Or Rafalca is indicative of just the kind of action-oriented entrepreneurial spirit that Americans need to emulate. And so forth. The question they should be asking themselves however, is, "WTF was he thinking?" Again, they might spin this straightforwardly as "He was, in the American Tradition, trying his best to keep what was his." 

I think however, the real answer, however true the possibilities #1 through #5 might ring is that, Mr Romney, along with many of his supporters, as a result of their power, wealth, and/or business success feels psychologically ENTITLED to aggressively push the boundaries of potential benefits, which ironically (though perhaps unsurprising to psychologists) is the character flaw for which he chastises the now infamous 47%. 

Hmmm. Can anyone spell P-R-O-J-E-C-T-I-O-N??!?